Chaanakya Tracking the economy….

A Wealth Incorporation

Publication

May 16, 2012

Vol. 6

Issue 04

2

Index

News

National 3

International 5

Rates and Graphs 7

Contemporary Articles

Public Private Partnership: Not That Good an Option 9

Hedge Funds 10

The Downgraded Effect 12

Stock Watch

Cipla Limited 13

Investor Check

Plastene India Limited IPO 16

Commodity Market

Cardamom 18

Scams

Multi-Crore Land Scam in Andhra Pradesh 19

Did You Know

Efficient Market Hypothesis 21

Crossword 23

Buzz Word

Portfolio at Risk (PAR) 11

Counter-Cyclical 20

3

National News

Sanjeet Kumar [I MBA J]

Finally, an LN Mittal project kicks off in India

Even as two mega steel projects of the world‘s second-richest Indian Laxmi Nivas Mittal

have been facing hurdles in the country for several years, the nine-million-tonne Guru Gobind Singh Refinery — a project of his company‘s joint venture with HPCL — has started

operations. The `21,500-crore refinery, built in record 42 months, is his company‘s first

green field project in India.

Adidas admits to India irregularities, says may take 871 crore hit.

Global sportswear major Adidas admitted to ―commercial irregularities‖ at the Indian unit of

Reebok, its most popular and the leading sportswear brand in the country. The admission

came a month after Managing Director Subhinder Singh Prem and Chief Operating Officer

(COO) Vishnu Bhagat stepped down after long stints.

Adidas said on 1st of May 2012 the situation in India could result in a pre-tax impact of up to

871 crore, while further restructuring could cost up to 488 crore in 2012.

Wipro to buy analytics firm Promax for $36 mn

Information technology (IT) services provider Wipro on 1st may 2012 announced it had

signed an agreement to acquire Australian analytics company Promax Applications Group

(PAG) for $35 million (around $36.5 million or 192 crore).

Moody’s reviews LIC, three top banks

The country‘s largest portfolio investor, Life Insurance Corporation of India (LIC), has been put under review, leading to a possible downgrade, by Moody‘s, the global rating agency.

The reason for downgrade is the financial behemoth‘s high exposure to sovereign debt and

lack of revenue sources from outside India.

Besides LIC, three top private sector banks — ICICI, HDFC and Axis — are also staring at a

possible downgrade by the agency.

Core sector grows 2% in March; IIP to be negatively impacted

The industrial performance for 2011-12 seemed to be ending on a sad note, as the crucial eight sectors grew a dismal two per cent in March, against 6.9 per cent in February, owing to

contraction in crude oil and natural gas and slowing growth in electricity. The eight sectors,

which have a weight of 38 per cent in the index of industrial production (IIP), grew 6.5 per

cent in March 2011.

Exports fall for the first time since 2009

Exports fell for the first time since the 2009 global financial crisis in March this year, as

demand weakened in the US and Europe. Exports dropped 5.7 per cent to $28.6 billion from

the same period a year earlier. The current account deficit was $19.6 billion in the December quarter, higher than $9.7 billion a year earlier.

4

End of the road for Fiat-Tata Motors distribution tie-up

Six years after Fiat agreed to sell its cars through Tata Motors dealers, the Italian auto maker

has decided to call off its distribution and commercial alliance and go solo in India. Fiat will

now set up a new subsidiary company in India to look after sales, distribution and service of its own cars.

GAAR will be put off by a year

The finance ministry will defer the implementation of the controversial General Anti

Avoidance Rule (GAAR) by a year, as investors have demanded more time for compliance.

RBI eases norms to boost inflows as rupee weakens

The Reserve Bank of India swung into action on 4th May 2012 after the rupee depreciated 1.7 per cent in four trading sessions and went close to its all-time low levels in early trade . In a

communication made after market hours, the central bank relaxed norms to encourage foreign

currency inflows.

The RBI relaxed the interest rate ceiling on foreign currency non resident (FCNR) deposits of

banks with maturities of one to three years to 200 basis points above the LIBOR or swap rate, from 125 basis points now.

Volume growth continues in FMCG

Fast moving consumer goods (FMCG) companies appeared to have sustained their sales

momentum in the quarter ended March 31, at a time when inflationary pressures were high.

Companies that have declared their results till date for the quarter report double digit top-line

growth, from 13 per cent (Nestle) to 39 per cent (Procter & Gamble Hygiene and Healthcare).

HCL Group to buy majority stake in DLF Pramerica Life

Indian billionaire Shiv Nadar‘s foray into the insurance sector is likely to fructify soon. DLF

Pramerica Life, seeking an Indian partner for its operation, is in talks with Nadar‘s HCL Group to sell a majority stake.

HCL Group is now set to buy 51 per cent stake in DLF Pramerica Life Insurance Company.

The deal size is expected to be around `500 crore.

RBI announces OMO to ease liquidity

The Reserve Bank of India (RBI) on 7th May 2012 said it might infuse up to `12,000 crore

this week via Open Market Operations (OMO), to ease liquidity pressure and create appetite for fresh supply of government bonds.

5

International News

Sanjeet Kumar [I MBA J]

Spain in recession as austerity bites

Spain sank into recession in the first quarter and economists said spending cuts aimed at

meeting strict European Union deficit limits together with troubles in the banking sector would delay any return to growth until late this year or beyond.

It is the second recession in just over two years for the euro zones fourth largest economy and comes as the government tries to convince investors it will not need outside aid to pay its

bills like other countries caught up in the debt crisis.

Nokia said to be in talks to sell luxury mobile unit Vertu

Cell phone maker Nokia is in talks to sell its UK luxury subsidiary Vertu, which hand makes

some of the world‘s most expensive mobile phones, a source familiar with the company‘s strategy said on 1st of May 2012.

Earlier the Financial Times reported that talks with private equity group Permira were at an advanced stage on a possible sale which would raise about $265 million.

US manufacturing expands at faster pace

Manufacturing unexpectedly expanded in April at the fastest pace in 10 months, driven by

gains in orders and production that signal the US remains a source of strength for the global

economy.

Euro zone factory output slips more

The euro zones manufacturing sector slipped further into decline last month as a downturn

that started in the periphery appears to be taking root among core members France and

Germany, a survey showed on 3rd of May 2012.

Facebook plans to raise $10.6 bn in IPO

Facebook Inc aims to raise about $10.6 billion in Silicon Valley‘s largest IPO, dwarfing the coming-out parties of tech companies like Google Inc and granting the world‘s largest social

network a market value close to Amazon.com‘s.

Thomas Cook agrees on $2.3-bn refinancing deal

Thomas Cook Group Plc, the 170 year old UK tour operator that secured an emergency loan

to survive, agreed to a new financing package with lenders and said it was in talks to sell aircraft as part of a recovery plan.

The £1.4-billion ($2.3-billion) refinancing extends the maturity of borrowings until May 31, 2015, and provides ―further stability‖ to the business.

6

Yahoo! in talks to sell 15-25% of Alibaba

Yahoo! Inc could be weeks away from selling 15 to 25 per cent of Alibaba Group‘s stock

back to China‘s largest e-commerce company, in a deal designed to eliminate complexities

that had scuttled the parties‘ previous negotiations, a person familiar with the matter said.

Buffett targets Asia for expansion

Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc, said he‘s pursuing more

opportunities in Asia after boosting reinsurance sales and expanding the Iscar Metal working

Cos unit on the continent.

China orders Big Four audit firms to restructure

The world‘s top four accounting firms will have to bring in Chinese citizens to run their operations in China and end the dominance of foreign partners under new rules announced by

the finance ministry on 10th of May 2012.

The Big Four auditors — Deloitte Touche Tohmatsu, PricewaterhouseCoopers, Ernst &

Young and KPMG — must start to convert their practices this August and comply with all

the new rules by the end of 2017.

China central bank warns of inflation risk

China's central bank warned of continued risks of inflation, driven in part by rising labour costs, while pledging to increase two-way flexibility in its Yuan exchange rate in a quarterly

report.

OECD sees improvement in US, Japan economies

Economic activity in the United States and Japan is improving but sluggish activity in France

and Italy is dragging down the euro zone, the OECD said on 10th of May 2012.

China factory output growth slowest in 3 years

China‘s economy stuttered unexpectedly in April with lower than expected output data,

softening retail sales and easing prices suggesting economic headwinds might be stiffer than

thought, requiring more robust policy responses to counter them.

Industrial output expanded at its slowest annual pace in April in nearly three years, while

fixed asset investment growth dipped to its lowest in almost a decade.

Fitch downgrades JPMorgan’s rating

JPMorgan Chase & Co, the largest and most profitable US bank, had its credit grade lowered one level by Fitch Ratings, and Standard & Poor‘s said it may follow after the bank revealed

a $2 billion trading loss.

7

Rates

Pankaj Sharma [I MBA J]

Repo Rate 8.00%

Reverse Repo 7.00 %

Call rate 7.25%-8.40 % Inflation +6.89% for March 2012

Forex Reserve $ 293.173 Billion as on 23rd March 2012

91day T-Bill 8.4396% IIP 3.5% for February 2012

8.79 GS 2021 8.5121%

Graphs

Pankaj Sharma [I MBA J]

51

51.5

52

52.5

53

53.5

54

1-May 4-May 7-May 10-May 13-May

Rs/$

Rs/$

28000

28400

28800

29200

29600

30000

1-May 4-May 7-May 10-May 13-May

Gold(per 10 gram)

Gold(per 10 gram)

8

110

113

116

119

122

125

1-May 4-May 7-May 10-May 13-May

Oil(per bbl)

Oil(per bbl)

1000000

1200000

1400000

1600000

1800000

2000000

4600

4800

5000

5200

5400

5600

1-May 4-May 7-May 10-May 13-May

future rates open interest

4800

5000

5200

5400

5600

5800

16,000.00

16,400.00

16,800.00

17,200.00

17,600.00

18,000.00

01-May 04-May 07-May 10-May 13-May

sensex nifty

9

Public Private Partnership: Not That Good an Option

Rohit Munka [I MBA J]

The second phase of water pipeline work under Jawaharlal Nehru National Urban Renewal Mission (JNNURM) will be launched in the next few months and Metro water officials are

worried that they will not be able to secure the funds needed, as the city does not use water

meters to levy charges. The Centre believes that opting for Public Private Partnership (PPP)

will not only bring in capital but also will result into greater efficiency and higher levels of customer satisfaction.

Because of lack of funds and slow growth in GDP, PPP has been apple of the eye for government for any infrastructural development in the country. But here comes the real

question: Is government doing any good by adopting PPP?

The trends in PPP financing highlight many problems. The PPP offered by the Government

are, firstly, long-scale PPP programs and private companies rely heavily on commercial

banks for their debt financing. This long term debt financing exposes the banks to the risk of

asset-liability mismatch. Moreover, the continuous increase in interest charged by the bank (looking at the market conditions) and credit tightening could have adverse effects on some

projects. The delay in commencement and working of a project because of government

intervention can also be another major problem. Take for example, the proposal for building 1,500 Industrial Training Institutes (ITI) under PPP scheme was given by Prime Minister in

August, 2007 but till now various consultancy firms are still busy making plans for the

scheme due to government negligence and non-negotiating attitude. Also, the process of PPP

scheme implementation is quite lengthy which includes consultation, bidding processes, documentation & reviewing, arranging for required funds, government approval etc. Not only

that, even when the government is getting relief in infrastructural finance through PPP

schemes, the taxes levied are still on an increasing trend every financial year.

Needless to say, implementation of PPP in itself is a great initiative taken by the government

for country‘s economic development but this initiative can be made much more efficient and valuable for better development of the country. The government can invite foreign countries

to help in infrastructural development by implementing their own plans and strategies.

Recently, Japanese have shown great urge to build Bangalore-Chennai expressway which

gives us a hint that the implementation has already started in the country, Delhi-Mumbai corridor is the latest example in this zone. Also, the bureaucracy and nepotism in these

government departments needs to be reduced so that the private companies can get better grip

of the projects. Moreover, it would be better if the government finances a small percent of the total project cost to reduce debt financing and risk of asset-liability mismatch.

Having said so, it is good that the government has learnt some lessons after the failure of Delhi Noida expressway under PPP scheme and does not give much freedom to the private

companies. After all, we have experienced the largest PPP initiative in history and had to face

its consequences aftermath. It was called the ‗British East India Company‘.

Sources: Business line and a report of E & Y.

10

Hedge Funds

Sharnitha Ramachandran [I MBA I]

It is seen that hedge funds are heard by many, but only few know it too well. A hedge fund is

basically an investment fund with a diverse range of asset classes with the most commonly

traded ones being the liquid securities. The objective of investing in hedge funds is to make remarkable gains at reduced risks while preserving the capital all the while. Advanced

investment strategies like long, short, leveraged and derivative positions are used when

investing in hedge funds domestically and internationally so that the returns are got above a

specified market benchmark. It is only the high net worth individuals and institutions who are allowed to invest in hedge funds to diversify their portfolios and so it is dubbed as ‗mutual

funds for super rich.‘ It requires a very large minimum investment initially and investments

in hedge funds are said to be illiquid since the money is kept in the fund for at least a year.

The global hedge fund industry is a $ 2 trillion industry. In India, during late 2010, the size of

Indian hedge funds went up by almost 30 % with a 7% record growth in the month of September 2010 alone. Post financial crises, hedge funds were all that the investors had and

so it picked up momentum. However, in 2011 it showed 2 months of negative returns but

made significant margins when compared to the market standard. But in September of 2011,

unlike its previous year, the dollar shock prompted hedge funds to post a severe loss and all

the capital preserved till that time became wasted. The slide from `44 per dollar to `49 and

going beyond `51 later during 2011 caused the NAV‘s of the hedge funds to fall drastically.

This was because most of the Indian hedge funds have dollar as their base currency since

majority of the capital comes from foreign investors. So when hedge funds invest in the local

Indian market, currency risk happens at the time of dollars getting converted into rupees. However, the reporting is still done in terms of dollar. So each month, the factoring of the

returns from investment along with the factoring of the loss or gain by the rupee against the

dollar pulled the profits down. Losses were recorded due to this unexpected currency risk exposure.

Experts stated that hedge funds should be able to cancel out the currency exposure arising

due to long position in the market through their short positions. But practically, this was not possible because Indian hedge fund managers took short position through the futures market

where they had to pay 20 % of the value of their short exposure as margin alone and since

this was denominated in rupees, it further added to the currency risk. It exacerbated the helpless situation that the surprised managers were caught in. BSE Sensex also dipped at that

time and the market seemed bearish then.

The managers in charge of hedge funds are highly specialized and experienced and employ

multiple strategies and are paid a management fee and a performance fee. Management fee is

a specified percentage of the assets of the fund, typically 2% while performance fee is paid if

the fund‘s NAV increases during the year and varies depending on the profits made usually from 10 % to 25 %. Though performance fees sometimes eat into the returns of the investors,

it is basically to motivate the manager to perform well by making the right moves and hence

at times even the manager himself ends up investing in hedge funds to align the interests with that of the investors.

There are around 14 unique investment strategies with different degrees of risk, return and volatility. Some strategies have sub-strategies as well. The oft used one is the Global Macro

11

strategy which takes positions on stocks, bonds, currencies, gold and commodities based on macroeconomic events that happen at the global level. Hedge fund strategies also make use

of discrepancies arising in price movements between various securities and this way there is

benefit from arbitrage. Further, there is something called as funds of hedge funds wherein

collective investment happens in hedge funds instead of investment in individual securities alone so that the eggs are put in different baskets. A mix and match of uncorrelated hedge

funds which may be well-diversified or geographic-specific will generate a more stable,

long-term return eventually with a comparatively reduced minimum investment requirement.

The benefits of hedge funds are plenty. Reports show that hedge fund strategies can provide

positive returns in rising and falling equity and bond markets. Investment objectives vary from investor to investor and with numerous hedge fund strategies available, the manager is

also in a better position to make use of every opportunity and minimize disruptions. Besides,

hedge funds are better than traditional investment funds without the hassles to correctly enter

and exit the market. Sector focused hedge funds as in technology; bio-technology, realty etc. can also help an investor be relieved from other bearish sectors like banking, power, health

care etc. Some of the famous hedge funds companies include HFG India Continuum Fund,

India Deep Value Fund, Atlantis India Opportunities Fund among others.

What makes hedge funds attractive to investors is that hedging is actually practiced to reduce

risk but in the case of most of the hedge funds, the added goal of maximizing returns from investment seems to be the highlight. It is the Commodity hedge funds that have seen

stupendous growth and rapid fall better than any other hedge fund class and have posed

challenges for veteran traders as well, causing poor performance which prompted investors to

sell and even some players to close as well. The environment in which hedge funds operate require a close and careful study apart from accurate guesses that one needs to take to stay

ahead of jolts that are bound to happen in this tricky industry. At the end, the moral of the

hedge-funds story seems to be - Make hay while the sun shines ! ………

Buzz Word

Prachi Sharda [ I MBA J]

Portfolio at Risk (PAR)

Portfolio at Risk (PAR) is a standard international measure of portfolio quality that

measures the portion of a portfolio which is deemed at risk because payments are over-due. PAR 30 means the portion of the portfolio whose payments are more than 30 days

past due. PAR 30 above 5 or 10% is a sign of trouble in microfinance.

Source: http://www.investopedia.com/terms/

12

The Downgraded Effect

Geetha I [I MBA N]

Ratings agency Standard & Poor's has cut India's outlook to negative from stable, stating that India's investment and economic growth have slowed. S& P gave it a rating of BBB (-) from

stable. Moody's rating agency has a Baa3 rating on the country, while Fitch is at BBB-. All

are just one notch above non-investment grade or "junk" status.

Reasons for the downgrade:

1. The high cost of oil along with increasing gold imports drove India's current account deficit to its widest in eight years in the 2011/12 fiscal year which ended

in March

2. Modest progress on reforms given political constraints reflected in the March budget the government failed to undertake radical steps to cut subsidy spending,

while FY12 deficit overshot estimates by a wide margin.

3. Meanwhile, India's fiscal deficit increased to about 5.9 percent of GDP in the fiscal

year that ended in March, far above the government's 4.6 percent target. Cutting the fiscal deficit this year will be tough given a hefty subsidy burden and a

weakened government that has failed to push through significant reforms. The

deficit burden is worsened by a sharp slowdown in growth, with the Indian economy expanding at just 6.1 percent in the December quarter, the weakest in

nearly three years.

Impact of the downgrade:

1. A downgrade would increase borrowing costs for local companies and make it

harder to refinance debt. 2. Foreign investors have turned net sellers of Indian shares worth 3.23 billion rupees

in April, as the weakening fundamentals for the country is being compounded by

uncertainty about taxation. 3. Increased regulatory risks and reduced confidence on the government's ability to

tackle reforms.

Moving ahead:

Likelihood of another downgrade if the external position continues to deteriorate, growth

prospects diminish, or progress on fiscal reforms remains slow in a weakened political setting. There is a low likelihood of a rating downgrade actually occurring as there is an

expectancy that the economy will see some cyclical rebound in the near term, the

debt-to-GDP ratio is likely to remain stable, and the fiscal deficit is not expected to worsen substantially. The only risk to this view is forex reserves declining materially

General elections looming in 2014 are expected to limit the prospects for significant reforms

that would improve the investment climate and India's fiscal position. Though major reforms are tough, definitive actions on expenditure management, especially on the fuel pricing front

will reduce the subsidy burden.

Source: http://articles.economictimes.indiatimes.com/2012-04 25 and www.reuters.com/.../us-india-

ratings-id

13

Cipla Limited

Deebadwita De [I MBA J] and Shashank Mishra [I MBA N]

Cipla Limited is a prominent Indian pharmaceutical company, best-known outside its home

country for manufacturing low-cost anti-AIDS drugs for HIV-positive patients in developing

countries. It has played a similarly prominent role in expanding access to drugs to fight influenza, respiratory disease and cancer. Founded by nationalist Indian scientist Khwaja

Abdul Hamied as The Chemical, Industrial & Pharmaceutical Laboratories in 1935, Cipla

makes drugs to treat cardiovascular disease, arthritis, diabetes, weight control, depression and many other health conditions, and its products are distributed in virtually every country of the

world.

Cipla is the world's largest manufacturer of antiretroviral drugs (ARVs) to fight HIV/AIDS,

as measured by units produced and distributed. Roughly 40 percent of HIV/AIDS patients

undergoing antiretroviral therapy worldwide take Cipla drugs.

Key highlights:

Revenues up by 12% yoy to `18.6bn.

Domestic market revenue growth of 15.5% yoy to `7.5bn.

Export business reported growth of 11% yoy.

EBIDTA margin at 21.4% is slightly below the expectations of the market which is

mainly because of the high other expenses.

PAT jumped by 45% yoy primarily on account of improved gross margin.

14

15

Key developments in the stock:

Q4 Revenues up by 12% yoy at `18.6bn which is primarily led by domestic market

growth. Domestic business clocked in revenue growth of 15.5% yoy. The growth was

mainly driven by better performance, on account of growth in anti-asthma,

antibiotics, expectorants and anti-inflammatory therapy segments.

CIPLA has achieved EBITDA margin of 21.4% which is mainly led by high gross

margins.

Profit after tax crossed `1,100 cr and grew by 17%.

Indoor SEZ is significantly contributing to the sales which is a good sign for the

organization.

Comparison of Cipla BSE SENSEX and NIFTY:

The above chart shows that Cipla (BSE code: 500087) has outperformed both the indices for

last one year.

Recommendation for the Stock:

Cipla is one of the largest players in the pharmaceuticals sector in India. With its unique value preposition and huge market share, Cipla is expected to outperform the market. Their

investment phase is completed and now they are on track to achieve a sustainable growth.

The recommendation for the stock is ―BUY‖ for a period of 12 months with a target of 381.

Call: Buy

CMP: `318

Target Price : `381

Time Period: 12 months

16

Plastene India Limited IPO

Arnab Basak [I MBA J]

The primary market is experiencing a dream run in terms of the number of IPOs that has hit

the market in the last few months but there lacks quality in these IPOs because they are

considered as Junk IPOs and this has even made investors doubtful about the credentials of the Indian primary market, rating agencies like CRISIL and ICRA who give rating to the

IPOs and the market regulator SEBI who confirms the IPO and passes it.

There has not been much success in the primary market after the grand response of the big

shot MCX IPO. The IPOs that hit the market after the MCX IPO got either minimum

response from the investors or got withdrawn from the market due to very poor response from the investors. Some IPOs like Goodwill Hospitals and Research Centre Ltd. IPO and

Samvardhana Motherson Finance Ltd. (SMFL) IPO was withdrawn due to poor response

from the investors across the board. The SMFL IPO was a recent one on the cards that was

open from May 02, 2012 – May 04, 2012 but the `1665 Cr IPO was subscribed only 0.23

times on its final day of its subscription even though ICRA gave Grade 4 out of 5 to this IPO.

The response in Non-Institutional, Retail Individual and Employee Reservation Quota was

worst in recent years. All these categories received bids only for 1% of the quota allotted.

The latest IPO that is in the market is the Plastene India Limited IPO (PIL). It is a Gujarat

based company basically engaged in plastic packaging manufacturing. The company is a part of Champalal group based in Gandhidham. Plastene manufactures a variety of transport and

storage containers (Jumbo bags/FIBC‘s) for dry and liquid good, woven sack products (used

in Chemicals, fertilizers, cement, urea, minerals, resin, polymers and rubber industry), variety

of laminates structures for food and non-food applications and wide range of high tenacity Polypropylene Multifilament yarn-dope dyed. It has four manufacturing plants in India at

Gandhidham, Rajpur and Rakanpur in Gujarat.

PIL is making an Initial Public Offering of 9255290 shares, equivalent to 25.89% of the post

paid up capital of the company. Of the total issue 5% is reserved for the Employees, 50% of

the issue is reserved for QIB‘s, not less than 15% of the issue size is for non-institutional investors and the remaining 30% for the retail investors.

Objects of the Issue:

Purchase of Plant and Machinery for manufacturing new product, bock bottom

valve bags at Nani Chirai and expansion of manufacturing facilities.

Expansion of manufacturing facilities at Rajpur.

General Corporate purposes.

17

Issue Details:

PIL IPO Grading:

ICRA has given an IPO Grade 3 to Plastene India Ltd IPO which means that the company has

average fundamentals.

IPO Lead Manager and Registrar:

The lead manager for the issue is Motilal Oswal Investment Advisors Pvt Ltd. and the

registrar is Karvy Computershare Private Limited.

Recommendation:

The fundamentals of this company do not look impressive and with a grade of only 3 from

ICRA. I feel this IPO can be categorised as another junk IPO in the market unless and until it

is proved otherwise. A risk appetite investor can give it a try but it is a complete no for risk

averse and long term investors who expect steady returns.

Sources:

http://www.moneycontrol.com/news/ipo-issues-open/plastene-ipo-for-high-risk-appetite-

investors-smc_702197.html

http://moneyvriksh.com/blog/ipo-plastene-india-limited/

http://www.indiainfoline.com/Markets/ipo/synopsis/Plastene-India-Ltd/28006

http://bse2nse.com/ipo-initial-public-offers/3614-plastene-india-limited-ipo-may-15-2012-

a.html

Issue Open May 09 – May15, 2012

Issue Type 100% book building IPO

Issue Size 9255290 Equity Shares of `10

Issue Size `74.97 – 77.74 Cr

Issue Price `81-84 per Equity share

Market Lot 75 Shares

Minimum order Quantity 75 shares

Listing at BSE, NSE

18

Cardamom

Srinivas Prasad K [I MBA J]

Guatemala, India, Tanzania, Sri Lanka, El Salvador, Vietnam, Laos, Cambodia and Papua

New Guinea are the major cardamom growing countries. World production of cardamom is

estimated at 30000-35000 MT. Guatemala produced nearly two-third of the total global

cardamom production of about 23000 MT in 2004.

Saudi Arabia is single largest importer of cardamom, distantly followed by Kuwait. In India

production has decreased marginally from 11920 MT in 2002-03 to 11415 MT in 2004-05. Kerala (70%), Karnataka (20%) and Tamil Nadu (10%) are the cardamom growing states in

India. About 90% of the produce is consumed within the nation. India roughly exports

5% - 8% of its total production. Saudi Arabia accounts for 42% and Japan 39% of India's

exports (2004-05). Export of value-added product from cardamom like cardamom oil and cardamom oleoresins are increasing to Germany, Netherlands and UK.

Major Indian Markets:

Cardamom is sold at auction centers. Important markets for cardamom in the country are

Vandanmendu, Bodinayakanur, Kumily, Thekkady, Kumbum and Pattiveeran Patti in Kerala.

Factors Influencing Cardamom Markets:

Fresh cardamom is green and has a characteristic aroma. Freshness, color, aroma and size are the major factors that influence cardamom prices, in addition to the current supply-demand

scenario. Cardamom is usually stored in cooler areas to preserve its inherent properties.

Indian cardamom specially Alleppey Green is a premium grade against all other international grades. However, the production and export from Guatemala has profound influence on

Indian cardamom prices. Weather and annual production of a year, production in other

countries particularly Guatemala, year ending stocks and stocks-to-consumption ratio, time of arrival of new crop in the market, etc. also influence the price of cardamom.

Current Scenario:

Damages caused by bad weather this year in the major growing areas of India especially in

Kerala amid rising export demand has been the major reason for the price of the commodity.

Also crop failure as well as inferior quality of the cardamom supplied from Guatemala has also contributed to the price rise of the commodity in the Indian market.

The price of the commodity in MCX during the past three and half months (16th Jan to 5

May 2012) rose 68% to `1165 per qtl from `690 per qtl a 27% surge compared to the price

on 05 May 2011. The price of the commodity is likely to move further upwards in coming

days. According to reports, the price of the commodity in India may touch `2000 per kg soon.

With the increase in spot demand and lower arrivals from the growing regions, cardamom

futures in Indian exchanges (National Commodity and Derivative Exchange (NCDEX) and Multi commodity Exchange (MCX)) traded higher by 4.25% during (4th May to 11th May)

the period. Sources:

http://www.commodityonline.com/commodities/spices/

http://www.business-standard.com/

19

Multi-Crore Land Scam in Andhra Pradesh

Ankita Pagaria [I MBA J]

The "benevolence" of the Congress Government in Andhra Pradesh in allocation of land

(irregularly) for different purposes has caused enormous monetary loss running into several thousand crores of rupees between 2006 and 2011.

Alienation of land by the AP Government during 2006-11 was characterised by grave irregularities, involving allotment in an ad-hoc, arbitrary and discretionary manner to private

persons and entities at very low rates, without safeguarding the financial and socio-economic

interests of the state.

Most of these allotments were made during the tenure of the late Chief Minister

Y S Rajasekhara Reddy (who was in power between 2004 and 2009). In a large number of

cases of land allotment, the State Government ignored the prescribed procedures and disregarded "canons of financial propriety".

The CAG report discovers most of the land allotments to have been made during the term of former Chief Minister, late YS Rajasekhara Reddy, who ruled from 2004- 2009. Undue

benefit of `1,784 crore was merited by various entities and persons, owing to the difference

in rates regarding land allotment and market value. This was under the recommendations of

the concerned District Collector or the Empowered Committee that is headed by Chief Commissioner of Land Administration. ―During 2006-11, the State Government alienated

88,492 acres of land to 1,027 beneficiaries. In the 11 sampled districts, 459 allotments were

made, involving 50,285.90 acres of land. Of these, 409 cases were scrutinized in audit.

The auditor‘s report also states that the Government has not yet calculated the cost of land

allotment in 60 cases that have taken place in 11 districts. This has resulted in dues mounting

to `2,559 crore. ―An extent of 3,115.64 acres of land in Jammalamadugu mandal in Kadapa

district was allotted to Brahmani Industries Ltd (of Gali Janardhana Reddy) for setting up a

commercial airport and flying academy, in violation of Government of India‘s policy on setting up of commercial airports, and without verifying the suitability of the site and

viability of the project. It overlooked the fact that the Kadapa airport was just 50 km away.

Audit found that land allotments for commercial purposes were not made in a fair, consistent and transparent manner so as to serve the public interest.

The other major discrepancies are as follows:

Regarding the proposed airport, 3,115.64 acres was allotted, more than the required

2,500 acres. Thus an excess allotment of 615.64 acres took place. For the Brahmani

Industries, the CAG report states an undue favour for the company without any justification.

The company also received 10,760.66 acres of land for a green-field Integrated Steel Plant, involving an illegal alienation of 674.58 acres of water body and 2 tmc feet of water from the

Gandikota Reservoir without environmental clearance or independent examination of the

project report.

Gali Janardhana Reddy‘s Obulapuram Mining Company- unauthorisedly occupied

Government lands at grant of lease of 413.81 acres. In spite of being turned down by

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Anantapur District Collector in August 2008, order was revised. At the recommendation of state-run APIIC, alienation of 304.66 acres of land took place for an industrial park, without

reconsidering lease.

Andhra Pradesh Industrial Infrastructure Corp‘s irregular execution of sale deed for

8844.01 acres of land in Anantapur district for Lepakshi Knowledge Hub Ltd. This took place before infrastructure was created- no industry was established, no employment was

created by LKH. 4397 acres of land was mortgaged to obtain loans worth `790 crore from

different banks.

881.32 acres alienated in Mamidipally Village, Ranga Reddy District to APIIC at a

paltry cost causing loss of `874.03 crore. Out of this 500 acres was allotted by APIIC at

very low rates to Indu Tech Zone and Brahmani Infra Tech.

Sources:

http://indiawires.com/9443/news/national/cag-report-exposes-major-land-scam-in-andhra-

pradesh-during-congress-tenure/

http://articles.economictimes.indiatimes.com/2012-03-29/news/31254499_1_cag-allotment-

audit-report

http://news.oneindia.in/2012/03/30/cag-exposes-multi-crore-land-scam-in-andhra-pradesh.html

Buzz Word

Prachi Sharda [ I MBA J]

Counter-Cyclical

Counter-cyclical is the term used in economics to describe an element

that moves in the opposite direction to the overall economy. In previous

financial crises, microfinance has weathered the storms well, fairing far

better than other banks whose business was more closely tied to

mainstream domestic and international markets. Statistical evidence

from Adrian Gonzalez published in Micro Banking Bulletin shows that

microfinance institutions have proven to be less vulnerable to economic

downturns.

This time, with many MFIs more connected to the markets than before,

things are likely to be different. Institutions that depend heavily on

cross-border borrowing instead of deposits to finance loan portfolios are

likely to feel the liquidity squeeze most sharply. Few people are

predicting that microfinance will come through unscathed (in contrast,

for example, to the Asian financial crisis of 1997). What's clear is that

the impact will vary from country to country and that institutions could

suffer from a liquidity crisis.

Source: http://www.investopedia.com/terms/

21

Efficient Market Hypothesis

Vinay Goel [I MBA L]

Efficient Market Hypothesis, also known as Random Walk Theory, states that current

stock prices fully reflect available information about the value of the firm, and there is no

scope to earn excess profits by using such information, it deals with the most fundamental

and exciting issues in finance – why prices change in securities markets and how these changes take place. It has very important implications for investors as well as for financial

mangers. The first time the term ―efficient market‖ was used in 1965 paper by E F Fama

who said that in an efficient market, on the average, competition will cause the full effects of new information on intrinsic values to be reflected “instantaneously in actual prices”.

Many investors try to identify securities that are undervalued, which may be increased in

value in the future. Selecting securities that will outperform the market is a cumbersome job. A variety of forecasting and valuation techniques are used to facilitate investment

decisions. If a manager of a mutual fund with `100 cr. can increase the fund‘s return, after

transaction costs by 1/10th of 1 percent, this would result in `10 lacs gain. The EMH

asserts that none of these techniques are effective, and then no one can predictably

outperform the market.

The EMH asserts that the main engine behind price changes is the arrival of new

information. A Market is said to be efficient if prices adjust quickly and, on average,

without bias to new information. As a result, the current prices of securities reflect all available information at any given point in time. Consequently, there is no reason to

believe that prices are too high or too low. Securities prices adjust before an investor has

time to trade on and profit from a new piece of information.

The key reason for the existence of the EMH is the intense competition among investors to

book profit from any new information. The ability to identify over and under priced stocks

is very valuable. Consequently many people spend a considerable amount of time in an

effort to detect mispriced stocks. Naturally as more and more analysts compete against

each other in their effort to take advantage of over and underpriced securities, the

likelihood of being able to find and exploit such mispriced securities becomes smaller and

smaller. In equilibrium, only a relatively small number of analysts will be able to profit

from the detection of mispriced securities, mostly by chance. For the vast majority, the

information analysis payoff will likely not outweigh the transaction costs.

Three Versions of the Efficient Market Hypothesis

Weak Form Efficiency: The weak form of the efficient market hypothesis asserts

that the current price fully incorporates information contained in the past history of prices only. That is, nobody can detect mispriced securities and ―beat‖ the market by

analyzing past prices. The weak form of the hypothesis got its name for a reason –

security prices are arguably the most easily available pieces of information. Thus, one should not be able to profit from using something that ―everybody else knows‖.

On the other hand, many financial analysts attempt to generate profits by studying

exactly what this hypothesis asserts is of no value – past stock price series and

trading volume data. The technique is known as technical analysis.

22

The empirical evidence for this form of market efficiency, and therefore against the value of technical analysis, is pretty strong and consistent. After taking into

account transaction costs of analyzing and of trading securities it is very difficult

to make money on publicly available information such as past sequences of stock

prices.

Semi Strong Efficiency: The Semi Strong form of market efficiency hypothesis

suggests that the current price fully incorporates all publicly available

information. Public information includes not only past prices, but also data

reported in a company‘s financial statements, earnings and dividend announcements, announced merger plans, the financial situation of company‘s

competitor‘s, expectations regarding macroeconomic factors (such as inflation,

unemployment), etc. For example, for the analysis of pharmaceutical companies, the relevant public information may include the current state of research in pain

reliving drugs.

Semi strong efficiency of market requires the existence of market analysts who are not only financial economists able to comprehend implication of vast financial

information, but also macro economists, experts adept at understanding processes

in product and input markets. Acquisition of such skills must take a lot of time and effort. In addition, the public information may be relatively difficult to gather and

costly to process

Strong Form Efficiency: The strong form of market efficiency hypothesis

states that the current price fully incorporates all existing information, both public and private (sometime called inside information). The main difference

between the semi strong and strong efficiency hypothesis is that in the latter

case, nobody should be able to systematically generate profits even if trading on

information is not publicly known at the time. In other words, the strong form of EMH states that a company‘s management (insiders) are not be able to

systematically gain from inside information by buying company‘s shares ten

minutes after they decided to pursue what they perceive to be a very profitable acquisition. Similarly, the members of the companies‘ research department are

not able to profit from the information about the new revolutionary discovery

they completed half an hour ago. The rationale for strong form market efficiency is that the market anticipates, in an unbiased manner, future developments and

therefore the stock price may have incorporated the information and evaluated in

a much more objective and informative way than the insiders.

Sources:

NSE Research Papers

23

Crossword

Reddy Sreedhar T

Across

1. This international

service company, on

12 April 2012, announced

the launch of its new global business process

o u t s o u r c i n g ( BP O )

division, Global Services. 4. The maximum loss an

investor loses in options

for Long Put is....

5. Apex Indian bank, the Reserve Bank of India on

21 April 2012 directed all

commercial banks to print the '....' and IFSE code on

t h e p a s s b oo k a n d

statement of account of the customers.

7. World‘s second ranked

tennis player '.......'

defeated sixth seeded David Ferrer to clinch the

Barcelona Open Title on

29 April 2012. 8. This country hosted the 4th BRICS (Brazil, Russia, India, China, South Africa) summit

for the first time on 29 March 2012.

9. This bank is promoted by 20th Century Finance Corporation and Keppel Tatlee Bank of Singapore in India.

Down

1. This country's lender 'Woori Bank' on 18 April 2012 opened its maiden Indian branch in Chennai.

2. This country's Prime Minister 'Mark Rutte' and his Cabinet resigned on 23 April 2012

after failing to reach agreement on reducing the country's budget to meet European guidelines.

3. The Planning Commission on 18 April 2012 approved a total plan outlay of 48935 crore

rupees for this state in India for the year 2012-13,where it witnessed 13.8% increase

against the previous fiscal year 2011-12. 6. This country, on 25 April 2012, successfully test-fired an upgraded version of

Shaheen-1 missile.

24

Kritika Banerjee

Editor

Sanjeet Kumar

News

Reddy Sreedhar T

Crosswords & Quiz

Pankaj Sharma

Graph & Rates

Arnab Basak

Investors check

Sharnitha Ramachandran

Debate

Prasanth Pandiri &

Pawan Kumar Gundapuneedi

Alumni Speak

Vinay Goel

Did You Know

Dhruv Chopra

Contemporary Articles

Ankita Pagaria

Scams

Srinivas Prasad K

Commodity Market

Debadwita De &

Shashank Mishra

Stock Watch

Prachi Sharda

Buzz Words

Vedang Dave &

Sandeep Kumar

Boyapati

Review Committee

Kritika Banerjee

Creative Head &

Design

Team Members

25

About Us

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